RAA Regulatory Compliance & Ethical Practices 3

Question 1

Which of the following actions by an annuity producer constitutes 'rebating,' which is prohibited in most states?

Accepted Answer

Offering a client a portion of the advisor's commission as an incentive to purchase

Answer

Rebating occurs when a producer gives or offers to give a client anything of value — including a share of the commission — as an inducement to purchase an insurance or annuity contract.

Question 2

The SEC's Regulation Best Interest (Reg BI) applies to annuity recommendations when:

Accepted Answer

A variable annuity is recommended by a broker-dealer to a retail customer

Answer

Reg BI applies to broker-dealers recommending securities — which includes variable annuities — to retail customers, requiring the recommendation to be in the customer's best interest.

Question 3

A client's annuity application is flagged under an AML Customer Identification Program (CIP). What is the advisor's correct response?

Accepted Answer

Follow the firm's AML procedures and do NOT tip off the client that a SAR may be filed

Answer

AML regulations strictly prohibit 'tipping off' — advisors must follow internal AML procedures and may file a SAR, but they must never alert the client that suspicious activity has been reported.

Question 4

Under the NAIC's Best Interest Standard for annuity transactions, which of the following best describes the 'care' obligation?

Accepted Answer

Acting with reasonable diligence and care to understand the annuity and the client's profile before recommending it

Answer

The 'care' obligation under the NAIC Best Interest Standard requires producers to exercise reasonable diligence, care, and skill in understanding the product, the client's financial situation, and the suitability of the recommendation.

Question 5

An advisor recommends a fixed indexed annuity to an 82-year-old client with significant liquid assets. Which suitability factor is MOST critical to document?

Accepted Answer

The client's liquidity needs relative to the annuity's surrender period

Answer

For elderly clients, documenting that the client has sufficient liquid assets outside the annuity to meet ongoing needs is the most critical suitability factor given long surrender periods.

(RAA) Registered Annuity Advisor Practice Test

(RAA) Registered Annuity Advisor Practice Test

RAA Regulatory Compliance & Ethical Practices 3